Managing Rising Operating Costs: A 90-Day Plan for Malaysian SMEs

Since the middle of 2025, Malaysian small businesses have absorbed a wider service tax, a higher wage floor, a fuel surcharge on electricity bills and sharp increases in unsubsidised fuel, with another minimum wage step announced for 2027. None of these is large on its own. Together they can remove most of an SME’s operating margin without a single sale being lost. The answer is not panic cutting but a clear view of the cost base and a plan for each of its biggest lines.

Know your cost base before you cut it

Print the last 12 months of expenses and sort them from largest to smallest. In most SMEs five lines make up around 80% of the total: wages, rent, cost of goods or materials, utilities and fuel, and financing. Those five deserve a negotiation or a redesign. Everything below them deserves a quick review and nothing more. Owners who start by cancelling a RM60 subscription feel productive and change nothing.

Wages: the floor is moving

The statutory minimum wage is RM1,700 a month. In Budget 2027, tabled on 9 October 2026, the Government announced an increase to RM2,000 from 1 June 2027. Eligible MSMEs with annual sales turnover below RM50 million are exempt from the increase to give them time to adjust, and a one-percentage-point cut in MSME income tax rates is expected to benefit about 300,000 businesses. Employer contributions to EPF, SOCSO and EIS sit on top of every wage; our operating budget guide works through those rates.

Even if your business is exempt from the 2027 increase, the labour market is not. Staff who can earn RM2,000 at a larger employer will expect something close to it from you. Use the months before June 2027 to measure revenue per employee, match rosters to the hours customers actually arrive, cross-train staff so one absence does not need a replacement, and move repetitive admin into software. A smaller, better-trained team paid above the floor is usually cheaper than a large team paid the minimum, a third of whom leave every year.

Rent: negotiate the lease and check the tax

Service tax of 8% has applied to the rental of non-residential premises such as offices, shops and warehouses since 1 July 2025. In January 2026 the Prime Minister announced three changes: the rate for MSMEs is reduced to 6%; the exemption for MSME tenants now covers businesses with annual turnover of up to RM1.5 million, where previously it covered only RM500,000 to RM1 million; and newly established MSMEs receive a one-year deferment. If your turnover is below RM1.5 million, confirm with your landlord that no service tax is being added to your rent, and keep the paperwork that proves your status.

On the rent itself, open the renewal conversation six months early, while you still have the option to leave. Landlords with a reliable tenant will often trade a longer tenure for a flat rate. Look honestly at the space as well. A business that moved to hybrid working or online sales may be paying for square feet it no longer uses, and subletting or downsizing is a permanent saving rather than a one-off.

Electricity and fuel: the surcharge years

TNB introduced the Automatic Fuel Adjustment (AFA) on 1 July 2025 to replace the ICPT mechanism. Customers received rebates for nine consecutive months from August 2025 to April 2026, then a surcharge from May 2026 as generation costs rose after the crisis in West Asia; the AFA rate for September 2026 was +3.67 sen per kWh. Domestic customers using 600 kWh or less are fully exempt from AFA. Business premises are not.

Suppose a retail shop uses 6,000 kWh a month. A surcharge of 3.67 sen per kWh adds about RM220 to that month’s bill, roughly RM2,640 a year if it held, on top of the base tariff. TNB’s own advice applies: monitor usage through the myTNB app, keep air-conditioning at 24 to 26 degrees, and consider the Time of Use tariff, which prices electricity lower from 10pm to 2pm on weekdays and all day at weekends and public holidays. A bakery or laundry that can shift heavy loads into those hours will see the difference on the next bill.

Fuel has moved faster. For 10 to 16 September 2026 the unsubsidised price of diesel rose 25 sen to RM4.92 a litre and unsubsidised RON95 rose to RM4.02, with the Government citing the renewed escalation of the West Asia conflict. Subsidised BUDI95 at RM1.99 and BUDI Diesel at RM2.10 remain available only to eligible individuals through MyKad, subject to monthly limits, so most business fuel is bought at the unsubsidised price. Suppose a courier runs three vans on 2,400 litres of diesel a month: that single 25 sen increase costs RM600 a month, or RM7,200 a year. Route planning software, consolidated delivery days and a minimum order value for free delivery recover that money faster than any supplier negotiation.

SST on your inputs

Since 1 July 2025 service tax has extended to rental and leasing, construction, financial services, education and healthcare, and sales tax of 5% or 10% has applied to goods that were previously exempt, while daily essentials stayed untaxed. The business-to-business exemption is narrow: it applies only when a taxable person acquires the same type of taxable service it provides, so for most SMEs the service tax charged by suppliers is a cost like any other. Customs waived penalties for non-compliance up to the end of 2025, so from 2026 both your own compliance and your suppliers’ pricing are fully live.

Go through your supplier invoices and identify which now carry 6% or 8% that they did not carry two years ago. Where the supplier is a related business or a long-term partner, ask whether the exemption applies. Where it does not, the tax belongs in your cost base and in your prices, not in a surprise at year end.

Supplier costs

Supplier prices rarely fall on their own. Review each major supplier once a year against two alternatives, and let them know you are doing it. Ask for early-payment discounts if your cash flow allows, consolidate small orders into fewer large ones to cut delivery charges, and check whether a lower specification would serve the same purpose. Where a contract carries an automatic annual increase, negotiate a cap tied to a published index rather than a fixed percentage.

Financing costs

If rising costs push you towards borrowing, note that Budget 2027 increases financing facilities and guarantees for MSMEs to RM57 billion in 2027, from RM50 billion in 2026. Guaranteed schemes through your bank are usually cheaper than an unsecured overdraft used as permanent working capital. Borrow against a forecast, not against a shortfall.

A 90-day cost plan

1. Week 1: rank the last 12 months of costs and mark the five largest lines.
2. Weeks 2 to 3: check your service tax exposure on rent and supplier invoices, and your MSME status for the rental exemption.
3. Weeks 2 to 4: pull 12 months of TNB bills and fuel receipts; model the Time of Use tariff and one change to delivery routes.
4. Weeks 4 to 6: open lease renewal talks if your term ends within 12 months.
5. Weeks 4 to 8: tender your two largest supplier categories against alternatives.
6. Weeks 6 to 10: build the 2027 wage scenarios, with and without the RM2,000 floor.
7. Week 12: reprice any product or service whose margin has fallen below your floor, and book the next quarterly review.

Key takeaways

• Five lines (wages, rent, materials, utilities and fuel, financing) usually make up around 80% of costs. Negotiate those and leave the RM60 subscriptions alone.
• The minimum wage rises from RM1,700 to RM2,000 on 1 June 2027. MSMEs with turnover below RM50 million are exempt, but the labour market will price staff at the new floor anyway.
• The service tax rate on rent for MSMEs is 6% rather than 8%, and MSME tenants with turnover up to RM1.5 million are exempt. Check your landlord’s invoice.
• The AFA surcharge of 3.67 sen per kWh in September 2026 adds about RM220 a month to a 6,000 kWh shop; the Time of Use tariff can offset it if heavy loads move to off-peak hours.
• At RM4.92 a litre for unsubsidised diesel, a 25 sen rise costs a three-van courier RM600 a month. Route planning recovers more than supplier haggling.

How Gusto Style can help

Gold Growth Advisory is our fixed-price advisory package for owners who want a second pair of eyes on exactly these decisions: a structured cost review, negotiation preparation for leases and suppliers, and a quarterly check that the plan is holding. You get an adviser who knows your numbers without the cost of a full-time finance manager, and the price is agreed up front for the whole programme.